B) is not sitting here promising returns. It's just sitting there, happening to appreciate in value because current demand outpaces supply.

Whether or not there is value there really depends on whether you think there is value in a currency that is non-inflationary and that is easy to send around the world.

Let's say 5% of the world wants bitcoin as either a transactional currency or a store of value,.....

I think my argument is enforced when I see counter arguments that people believe in Bitcoin make, that are just not so.

The appreciation is NOT because of lack of supply. Think about that argument. O.K., just make more of that currency..... How do you think that will turn out. No, its rise in price is due to only one thing; because Bitcoin is only purchased for the sole purpose of selling it later to some sucker that will hopefully pay you more for it. Run away speculation.

I will repeat.

You will not find a single person that owns bitcoin so that he uses it as a currency.

I won't comment on the non-inflationary. Wow.

As for the comment about 'transactional currency or a store of value', once again I will repeat.....

You will not find a single person that owns bitcoin so that he uses it as a currency.

Stated another way, you will not find a single person trading a Dollar amount for a Bitcoin amount for the purpose that the dollar would not be accepted as currency, and the Bitcoin would.

Nope.

Everybody that buys bitcoin today, and I mean everbody, is buying for one reason only. In hopes of selling to a sucker tomorrow.

Not a currency.

Thats my view.

Last edited by 552BB on Sat Dec 02, 2017 11:14 am, edited 1 time in total.

Because suddenly there will be millions of more millionaires all chasing a limited supply of goods and services.

Hyperinflation would impact only Bitcoin, not more stable currencies. As long as the newly created value remains in Bitcoin, that additional "wealth" can appear stable. But whenever any store of value is sold to convert to dollars or other currency, that slightly depresses the Bitcoin exchange rate. If there's a Bitcoin bubble, it's only a matter of time until a critical mass of its holdings are sold, pushing the value down enough for others to notice. That triggers more sales, driving down the value further, eventually causing panic. Such a feedback loop is how bubbles crash.

Bubbles can create many paper millionaires, but when they try to cash it in, only those at the front of the line succeed.

-Marylander1

Understood. But in a scenario where Bitcoin becomes worth $5mm+ and people convert their Bitcoins at $1mm or $2mm into currency you can have a lot of people who are now millionaires who weren't before. Even today people are "cashing out" and although this depresses the price somewhat, due to demand and limited # of Bitcoins the price still goes up (although not as much as if people never sold). Now someone in the US who has a new million to play with won't create as much hyperinflation. But Bitcoin is traded globally. Zimbabwaens will now be millionaires too. There will simply be a lot of currency now and people willing to spend it.

As long as people effectively have to sell their Bitcoin for dollars, there cannot be hyperinflation in dollars because there are no new dollars in circulation; each sale of a Bitcoin for dollars is also a purchase of a Bitcoin for dollars, so the net effect on overall prices in dollars is zero.

Now if Bitcoin were widely accepted for purchases of goods, then those goods could go up quite a bit in dollars because the Bitcoin millionaires could outbid people using dollars.

Yes, I clearly missed the sell side too! So no new dollars are created. So then what is happening is a crypto "currency" was created out of thin air. People are using Dollars (or other currency) to buy it. It goes up in value which means along the way people are selling USD (or other currencies) to buy it. So then what is happening is for all the people who are buying Bitcoin someone has to be selling currency at a loss? I mean it simply can't be that all these new Bitcoin millionaires are being created without someone losing somewhere, correct? Cause that's how it seems to be happening (to me) today.

Whether or not there is value there really depends on whether you think there is value in a currency that is non-inflationary and that is easy to send around the world.

I think you are making an unwarranted assumption when you say bitcoin is a currency that is non-inflationary. The fixed amount rule removes one source of inflation. One inflationary mechanism has been removed, that is all.

But any time the value of a bitcoin goes down that is inflation. If prices denominated in bitcoin go up, then the bitcoin has inflated, plain and simple.

I am not sure it's even proper to call a currency non-inflationary. The thing that is inflationary is something that causes a currency to inflate.

One could say that the lack of backing by a powerful national bank is an inflationary mechanism of bitcoin.

Because suddenly there will be millions of more millionaires all chasing a limited supply of goods and services.

Hyperinflation would impact only Bitcoin, not more stable currencies. As long as the newly created value remains in Bitcoin, that additional "wealth" can appear stable. But whenever any store of value is sold to convert to dollars or other currency, that slightly depresses the Bitcoin exchange rate. If there's a Bitcoin bubble, it's only a matter of time until a critical mass of its holdings are sold, pushing the value down enough for others to notice. That triggers more sales, driving down the value further, eventually causing panic. Such a feedback loop is how bubbles crash.

Bubbles can create many paper millionaires, but when they try to cash it in, only those at the front of the line succeed.

-Marylander1

Understood. But in a scenario where Bitcoin becomes worth $5mm+ and people convert their Bitcoins at $1mm or $2mm into currency you can have a lot of people who are now millionaires who weren't before. Even today people are "cashing out" and although this depresses the price somewhat, due to demand and limited # of Bitcoins the price still goes up (although not as much as if people never sold). Now someone in the US who has a new million to play with won't create as much hyperinflation. But Bitcoin is traded globally. Zimbabwaens will now be millionaires too. There will simply be a lot of currency now and people willing to spend it.

As long as people effectively have to sell their Bitcoin for dollars, there cannot be hyperinflation in dollars because there are no new dollars in circulation; each sale of a Bitcoin for dollars is also a purchase of a Bitcoin for dollars, so the net effect on overall prices in dollars is zero.

Now if Bitcoin were widely accepted for purchases of goods, then those goods could go up quite a bit in dollars because the Bitcoin millionaires could outbid people using dollars.

Yes, I clearly missed the sell side too! So no new dollars are created. So then what is happening is a crypto "currency" was created out of thin air. People are using Dollars (or other currency) to buy it. It goes up in value which means along the way people are selling USD (or other currencies) to buy it. So then what is happening is for all the people who are buying Bitcoin someone has to be selling currency at a loss? I mean it simply can't be that all these new Bitcoin millionaires are being created without someone losing somewhere, correct? Cause that's how it seems to be happening (to me) today.

Let's take the example of a stock, say the (fictional) XYZ corp.

Today, there are 1 million shares outstanding of XYZ, and the last selling price was $10, so the total value of the shares is $10 million.

Tomorrow, the price doubles, so now the total value of the shares is $20 million.

Who lost that $10 million?

In theory, theory and practice are identical. In practice, they often differ.

You will not find a single person that owns bitcoin so that he uses it as a currency.

I won't comment on the non-inflationary. Wow.

Regarding your comment of not finding one single person to use it as a currency. You do now. I have.

I've bought things off of newegg and overstock with it. I've donated to help Venezuelans (sp?) eat because their currency is inflating away. A couple years ago, I helped donate to the Ukranian rebels as they fought that shadow war against Russia.

I still accept payment for goods and services in bitcoin as well. And pay people with it whenever possible if I owe them money (always buying back more to cover the bitcoin I sent, but nevertheless).

As far as the non-inflationary, I'm not sure what to tell you if you don't believe that there will only ever be 21M bitcoin. It is literally in the protocol. It's why I got involved with bitcoin in the first place.

Last edited by ensign_lee on Sat Dec 02, 2017 1:39 pm, edited 1 time in total.

So let's say you have a gain of 10 million in bitcoins. You decide to sell all of it. When you sell it will there be an ACH transfer to your checking or savings? Is it that simple?

No. Depends who you sell it to and the terms of payment you agree with the buyer.

Bitcoin is typically traded on an exchange platform, which would pay out to your bank account if you choose to withdraw your USD balance.

You can also find a private buyer and negotiate terms with them.

Sounds like a pain. No thanks.

Just to be clear, if you had an account at gdax or gemini, the two main exchanges servicing the US, yes, it would be exactly what you were saying - an ACH transfer to your checking or savings. It is specifically that simple.

I think that bridge was just saying you of course always have the option to try and sell your bitcoin a different way, meeting up with someone locally.

Is there any real value behind bitcoin other than the belief that someone in the future will pay more for a coin?

Will scalability challenges eventually reach a tipping point and trigger a doomsday scenario crash leaving bitcoin owners with nothing in the end?

Personally I am very surprised by all of this. I see no underlying value in Bitcoin. Honestly it reminds me very much of HYIP Ponzi scams. In fact HYIPs have gotten so popular that there are tons of other sites devoted to them including trackers, blogs, etc. People KNOWINGLY invest in these scams. See for example: https://bitcointalk.org/index.php?topic=520086.0

Is it the same HYIP losers who are the pioneering bitcoin investors?

EDIT: I am fully aware that Bitcoin isn't technically a Ponzi scam. By equating Bitcoin to a Ponzi, I am using the term informally to refer to to a huge speculative bubble with "greater fool" characteristics. HYIP, on the other hand, definitely is a Ponzi.

To my understanding it is a lot like a fiat currency, except without a government to back it up; or gold, absent its decorative and industrial usages. It has some value, and is not frankly a Ponzi scheme. But it could just as easily be worth $20 as $2,000,000,000. I don’t think either of those valuations is out of the range of possibility. It’s simply unknowable; and as it has no dividend or underlying business, it’s not an investment, but purely a speculation, a gamble.

The attraction of an untraceable, anonymous currency is obvious, and you don’t have to be a mafia boss to understand that. Could Mugabe try to smuggle his pilfered net worth out of Zimbabwe with Bitcoin? It would be harder to track than if he did it with dollars.

On the other hand, ten or one million other cryptocurrencies could be created and at some point they are competing with each other and the whole field is a commodity. Prices could plummet.

As far as the non-inflationary, I'm not sure what to tell you if you don't believe that there will only ever be 21M bitcoin. It is literally in the protocol. It's why I got involved with bitcoin in the first place.

If anything it will be deflationary because lots of bitcoins have already been lost. And since they can't be replaced, there will never be a total market supply of all 21m bitcoins. It will simply get smaller over time. Deflationary currency is not good. It lowers demand and rewards holding currency and not spending it. This can have all sorts of unwanted economic effects.

As far as the non-inflationary, I'm not sure what to tell you if you don't believe that there will only ever be 21M bitcoin. It is literally in the protocol. It's why I got involved with bitcoin in the first place.

If anything it will be deflationary because lots of bitcoins have already been lost. And since they can't be replaced, there will never be a total market supply of all 21m bitcoins. It will simply get smaller over time. Deflationary currency is not good. It lowers demand and rewards holding currency and not spending it. This can have all sorts of unwanted economic effects.

What's to prevent them from increasing the 21m limit?

That's just a line in a config file right? Not some immutable law of nature as I understand it.

As far as the non-inflationary, I'm not sure what to tell you if you don't believe that there will only ever be 21M bitcoin. It is literally in the protocol. It's why I got involved with bitcoin in the first place.

If anything it will be deflationary because lots of bitcoins have already been lost. And since they can't be replaced, there will never be a total market supply of all 21m bitcoins. It will simply get smaller over time. Deflationary currency is not good. It lowers demand and rewards holding currency and not spending it. This can have all sorts of unwanted economic effects.

What's to prevent them from increasing the 21m limit?

That's just a line in a config file right? Not some immutable law of nature as I understand it.

1. Changes in the code may change the validity of the past transactions.
2. If not all nodes implement the changes, the chains of future transactions may diverge.
3. Increasing the number of Bitcoins devalues the assets of the current Bitcoin owners.

Victoria

WINNER of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

As far as the non-inflationary, I'm not sure what to tell you if you don't believe that there will only ever be 21M bitcoin. It is literally in the protocol. It's why I got involved with bitcoin in the first place.

If anything it will be deflationary because lots of bitcoins have already been lost. And since they can't be replaced, there will never be a total market supply of all 21m bitcoins. It will simply get smaller over time. Deflationary currency is not good. It lowers demand and rewards holding currency and not spending it. This can have all sorts of unwanted economic effects.

What's to prevent them from increasing the 21m limit?

That's just a line in a config file right? Not some immutable law of nature as I understand it.

1. Changes in the code may change the validity of the past transactions.
2. If not all nodes implement the changes, the chains of future transactions may diverge.
3. Increasing the number of Bitcoins devalues the assets of the current Bitcoin owners.

Victoria

If any of those are actually possible issues, then it is even more ridiculous to put any noticeable amount of money into it.

In theory, theory and practice are identical. In practice, they often differ.

As far as the non-inflationary, I'm not sure what to tell you if you don't believe that there will only ever be 21M bitcoin. It is literally in the protocol. It's why I got involved with bitcoin in the first place.

If anything it will be deflationary because lots of bitcoins have already been lost. And since they can't be replaced, there will never be a total market supply of all 21m bitcoins. It will simply get smaller over time. Deflationary currency is not good. It lowers demand and rewards holding currency and not spending it. This can have all sorts of unwanted economic effects.

What's to prevent them from increasing the 21m limit?

That's just a line in a config file right? Not some immutable law of nature as I understand it.

1. Changes in the code may change the validity of the past transactions.
2. If not all nodes implement the changes, the chains of future transactions may diverge.
3. Increasing the number of Bitcoins devalues the assets of the current Bitcoin owners.

Victoria

If any of those are actually possible issues, then it is even more ridiculous to put any noticeable amount of money into it.

These are potential issues if the Bitcoin code were changed. Some changes to the code that are not causing serious issues are possible. For example, it's easier to remove features than to add features.

But increasing the number of Bitcoin units would go against the economic interests of the entities that run the Bitcoin network (and have the largest holdings of Bitcoins).

Victoria

Last edited by VictoriaF on Sat Dec 02, 2017 4:56 pm, edited 1 time in total.

WINNER of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

If anything it will be deflationary because lots of bitcoins have already been lost. And since they can't be replaced, there will never be a total market supply of all 21m bitcoins. It will simply get smaller over time. Deflationary currency is not good. It lowers demand and rewards holding currency and not spending it. This can have all sorts of unwanted economic effects.

What's to prevent them from increasing the 21m limit?

That's just a line in a config file right? Not some immutable law of nature as I understand it.

1. Changes in the code may change the validity of the past transactions.
2. If not all nodes implement the changes, the chains of future transactions may diverge.
3. Increasing the number of Bitcoins devalues the assets of the current Bitcoin owners.

Victoria

If any of those are actually possible issues, then it is even more ridiculous to put any noticeable amount of money into it.

These are potential issues if the Bitcoin code were changed. Some changes to the code that are not causing serious issues are possible. But increasing the number of Bitcoin units would go against the economic interests of the entities that run the Bitcoin network (and have the largest holdings of Bitcoins).

Victoria

I have learned not to put too much faith in the idea that everyone will act in what seems to be their best economic interest.

Another rule I have (similar to others mentioned here) is: if it's too complicated to explain to a layperson, it is best to stay away.

Of course in this case people have made enormous amounts of money on something extremely complicated, and I'm sure many of those people have no idea what they are investing in.

But as another person has pointed out in a recent thread, good outcomes are not equivalent to good strategy.

In theory, theory and practice are identical. In practice, they often differ.

That's just a line in a config file right? Not some immutable law of nature as I understand it.

1. Changes in the code may change the validity of the past transactions.
2. If not all nodes implement the changes, the chains of future transactions may diverge.
3. Increasing the number of Bitcoins devalues the assets of the current Bitcoin owners.

Victoria

If any of those are actually possible issues, then it is even more ridiculous to put any noticeable amount of money into it.

These are potential issues if the Bitcoin code were changed. Some changes to the code that are not causing serious issues are possible. But increasing the number of Bitcoin units would go against the economic interests of the entities that run the Bitcoin network (and have the largest holdings of Bitcoins).

Victoria

I have learned not to put too much faith in the idea that everyone will act in what seems to be their best economic interest.

Some economic interests are more obvious than others. For example, home owners may object to new developments in their area, because the new homes will reduce the value of their homes. Taxi drivers object to Uber, because Uber reduces their revenues.

In the real estate and Uber examples there are other entities, such as local governments, that decide whether new developments or new ride services should be approved. In the case of Bitcoin, the main wealth holders are also the main decision makers.

Of course in this case people have made enormous amounts of money on something extremely complicated, and I'm sure many of those people have no idea what they are investing in.

But as another person has pointed out in a recent thread, good outcomes are not equivalent to good strategy.

I am not advocating investing in Bitcoin, just as I am not advocating investing in gold. It may have some merits, it may make some people spectacularly wealthy. But I am satisfied with my low-risk portfolio and get my thrill outside the investing domain. I do, however, find the blockchain technology very interesting. I have seen some innovative ideas, such as writing land deeds and other contracts, selling one's intellectual property in custom chunks, and managing one's identity, that are becoming possible with the blockchain technology and the platforms that use it.

Victoria

WINNER of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

My (admittedly limited) understanding is that "miners" are paid bitcoins for recording transactions in the blockchain.

Once all the bitcoins have been mined how are the people/nodes maintaining the blockchain going to make any money?

I understand the inflationary aspect of increasing the number of bitcoins but it seems inevitable to me at least.

The nodes maintaining the blockchain can be paid a small percentage of the transactions. Today Visa charges merchants 2-3% for handling credit transactions, and the credit economy does not seem to suffer.

Victoria

WINNER of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

1. Changes in the code may change the validity of the past transactions.
2. If not all nodes implement the changes, the chains of future transactions may diverge.
3. Increasing the number of Bitcoins devalues the assets of the current Bitcoin owners.

Victoria

If any of those are actually possible issues, then it is even more ridiculous to put any noticeable amount of money into it.

These are potential issues if the Bitcoin code were changed. Some changes to the code that are not causing serious issues are possible. But increasing the number of Bitcoin units would go against the economic interests of the entities that run the Bitcoin network (and have the largest holdings of Bitcoins).

Victoria

I have learned not to put too much faith in the idea that everyone will act in what seems to be their best economic interest.

Some economic interests are more obvious than others. For example, home owners may object to new developments in their area, because the new homes will reduce the value of their homes. Taxi drivers object to Uber, because Uber reduces their revenues.

In the real estate and Uber examples there are other entities, such as local governments, that decide whether new developments or new ride services should be approved. In the case of Bitcoin, the main wealth holders are also the main decision makers.

Okay, but that may not always be true, for reasons that I can't go into due to forum rules.

Another rule I have (similar to others mentioned here) is: if it's too complicated to explain to a layperson, it is best to stay away.

Some people make explanations of bitcoins too complex. Frequently, these are people who don't understand the technology and incoherently throw in technical jargon to hide their ignorance.

There are also some pretty good explanations of Bitcoin, e.g., in TED talks.

I very much doubt that it can be explained in a way that a layperson can truly understand.
Note: I am a computer programmer with decades of experience, so I'm pretty sure I personally could understand it. I'm referring to the general public, including most of those who have invested in Bitcoin.

Of course in this case people have made enormous amounts of money on something extremely complicated, and I'm sure many of those people have no idea what they are investing in.

But as another person has pointed out in a recent thread, good outcomes are not equivalent to good strategy.

I am not advocating investing in Bitcoin, just as I am not advocating investing in gold. It may have some merits, it may make some people spectacularly wealthy. But I am satisfied with my low-risk portfolio and get my thrill outside the investing domain. I do, however, find the blockchain technology very interesting. I have seen some innovative ideas, such as writing land deeds and other contracts, selling one's intellectual property in custom chunks, and managing one's identity, that are becoming possible with the blockchain technology and the platforms that use it.

Victoria

I agree that blockchain technology may have very valuable applications.

I just don't think that Bitcoin's price reflects that, any more than the IPO price of LNUX reflected the value of Linux. I believe that almost the entirety of the current Bitcoin price is an "extraordinary popular delusion".

In theory, theory and practice are identical. In practice, they often differ.

I just don't think that Bitcoin's price reflects that, any more than the IPO price of LNUX reflected the value of Linux. I believe that almost the entirety of the current Bitcoin price is an "extraordinary popular delusion".

it's quite possible. It's also possible that "the [Bitcoin] market can remain irrational longer than [Bitcoin bears] can remain solvent."

Victoria

WINNER of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

I just don't think that Bitcoin's price reflects that, any more than the IPO price of LNUX reflected the value of Linux. I believe that almost the entirety of the current Bitcoin price is an "extraordinary popular delusion".

it's quite possible. It's also possible that "the [Bitcoin] market can remain irrational longer than [Bitcoin bears] can remain solvent."

Victoria

That is true only if the Bitcoin bears are short Bitcoin.

In theory, theory and practice are identical. In practice, they often differ.

It is inherently insecure (if I can hack your wallet and take your bitcoin, there is no third party or government that will roll back the transaction).

For a hacked wallet I believe that in principle you have the same recourse as you have for a picked pocket. If you convince a DA and judge that the Bitcoins were stolen the hacker could be imprisoned and required to make restitution. The details of the required proof would differ and the chances the hacker is in another country is much higher (which complicates matters) but in principle the same laws apply. Also remember that Bitcoins are not really anonymous so tracking where they went is possible.

Which is to say Bitcoin is not outside the law. Stealing them is illegal. Using them to make illegal transactions is illegal. Not paying taxes on gains is illegal, etc.

From a macroeconomic perspective to have a currency with a fixed supply and a rapidly increasing value leads to deflation and economic depressions. This was somewhat of an issue when currency was fully backed by gold.

There is nothing in the nature of Bitcoins that prevents using them as a basis for fractional reserve banking, just as there was nothing in the nature of gold that prevented it being used as a basis for fractional reserve banking. The Bitcoin miners might not like this but it's not up to them. As long as governments allow loans and people are willing the accept promises to pay there is nothing the Bitcoin miners can do about it. The Bitcoin money supply need not be fix as long as people can create B2, B3, B4, ... to go along with B1 (the number of Bitcoins on the block chain).

My (admittedly limited) understanding is that "miners" are paid bitcoins for recording transactions in the blockchain.

Once all the bitcoins have been mined how are the people/nodes maintaining the blockchain going to make any money?

I understand the inflationary aspect of increasing the number of bitcoins but it seems inevitable to me at least.

So the transaction fees aren't supposed to be significant (at least relative to the price of a bitcoin) while mining for bitcoins itself is still profitable. Keep in mind that mining for new bitcoins is supposed to go till 2140...

When there are no more bitcoins to be mined (or when it isn't as profitable), the transactions fees should go up correspondingly to give incentive for the miners to continue creating blocks to process transactions onto the ledger. By that time (assuming bitcoin survives and flourishes), the txn volume should be many orders of magnitude of what it is today including the fee revenue.

However, look at this graph which shows the average bitcoin txn fee. Beginning of 2017, the fee was pretty minor at less than $0.50. A few weeks ago, the fee almost hit $20 though it's come down from that. This is due to bitcoin's low transaction rate which isn't keeping up with demand as the bitcoin price has spiked. I think on average it's like 6-8 txns per second. Compare that to Visa which does something like 2000 txns per second today and can support 10 times that.

My (admittedly limited) understanding is that "miners" are paid bitcoins for recording transactions in the blockchain.

Once all the bitcoins have been mined how are the people/nodes maintaining the blockchain going to make any money?

I understand the inflationary aspect of increasing the number of bitcoins but it seems inevitable to me at least.

So the transaction fees aren't supposed to be significant (at least relative to the price of a bitcoin) while mining for bitcoins itself is still profitable. Keep in mind that mining for new bitcoins is supposed to go till 2140...

For environmental reasons, I suspect that would not be allowed. Someone is driving around with a bitcoin miner in his Tesla trunk, to make use of the free electricity at Tesla chargers. That won't go on forever-- nor in China.

When there are no more bitcoins to be mined (or when it isn't as profitable), the transactions fees should go up correspondingly to give incentive for the miners to continue creating blocks to process transactions onto the ledger. By that time (assuming bitcoin survives and flourishes), the txn volume should be many orders of magnitude of what it is today including the fee revenue.

However, look at this graph which shows the average bitcoin txn fee. Beginning of 2017, the fee was pretty minor at less than $0.50. A few weeks ago, the fee almost hit $20 though it's come down from that. This is due to bitcoin's low transaction rate which isn't keeping up with demand as the bitcoin price has spiked. I think on average it's like 6-8 txns per second. Compare that to Visa which does something like 2000 txns per second today and can support 10 times that.

And I think this is an Achilles heel (cost of transactions). We shall see.

I can see how blockchain, and even cybercurrencies, will be big. Bitcoin? That's got all the makings of a new financial bubble to me (the ads in the London Underground for CFDs on bitcoins for the punter did it for me-- I couldn't find one of Bernard Baruch's elevator operators to confirm it (do they still have such on Wall Street? ) but nonetheless...)

I just don't think that Bitcoin's price reflects that, any more than the IPO price of LNUX reflected the value of Linux. I believe that almost the entirety of the current Bitcoin price is an "extraordinary popular delusion".

it's quite possible. It's also possible that "the [Bitcoin] market can remain irrational longer than [Bitcoin bears] can remain solvent."

Victoria

That is true only if the Bitcoin bears are short Bitcoin.

AFAIK there's no easy way of shorting Bitcoin. And if you read that paper by Andrei Schlifer ("Irrational Markets") then one can see how it can be rational for a rational speculator to long Bitcoin, not short it (in the presence of "noisy traders" who trade on price momentum, and limits to borrowing/ arbitrage).

Just as (see Stiglitz) tiny information asymmetries can have huge impacts on macroeconomic stability, so too a relatively small number of momentum traders can up-end market logic.

My (admittedly limited) understanding is that "miners" are paid bitcoins for recording transactions in the blockchain.

Once all the bitcoins have been mined how are the people/nodes maintaining the blockchain going to make any money?

I understand the inflationary aspect of increasing the number of bitcoins but it seems inevitable to me at least.

The nodes maintaining the blockchain can be paid a small percentage of the transactions. Today Visa charges merchants 2-3% for handling credit transactions, and the credit economy does not seem to suffer.

Victoria

There are sectors which are being charged anywhere from 10-30% for transactions. Not sure what your local Somali immigrant is paying money to Western Union to send funds home, but I have a suspicion it's way north of 10%.

International transactions are pretty horrible in that way -- I get charged basically 2% for USD purchases on my credit cards.

In the US you have cheque-cashing operations that are charging effective rates of that sort.

I could name you some others but leave it at that.

There *are* market inefficiencies to be arbitraged here, but it's not clear to me that this is the endgame solution to them. Basically we are seeing people hoarding bitcoin, rather than transacting in it, because the price is going up. And it couldn't handle a big volume of transactions in any case (hence the rise in transactions costs).

As far as the non-inflationary, I'm not sure what to tell you if you don't believe that there will only ever be 21M bitcoin. It is literally in the protocol. It's why I got involved with bitcoin in the first place.

If anything it will be deflationary because lots of bitcoins have already been lost. And since they can't be replaced, there will never be a total market supply of all 21m bitcoins. It will simply get smaller over time. Deflationary currency is not good. It lowers demand and rewards holding currency and not spending it. This can have all sorts of unwanted economic effects.

What's to prevent them from increasing the 21m limit?

That's just a line in a config file right? Not some immutable law of nature as I understand it.

So that's a fair question. And the answer is why would anyone want it? It would merely inflate away the value of our assets. You'd have to convince at least more than 50.1% (more realistically) of its users and miners and devs to want it.

One of the biggest reasons to get involved with bitcoin vs any other altcoin imo is how hard it is to change. We just spent three YEARS and a basically a bitcoin dev civil war to try and address our scaling problem, where there are currently more people using bitcoin per second than the market can support with 0 fees.

There is basically a 0% chance that would ever happen. Anyone that wants to get involved with an inflationary crypto has plenty of other cryptos to choose from. Ethereum, for instance, is doing well, and it has no hard cap. And Dogecoin, though it started out as a joke and probably still is, is inflationary as well.

My (admittedly limited) understanding is that "miners" are paid bitcoins for recording transactions in the blockchain.

Once all the bitcoins have been mined how are the people/nodes maintaining the blockchain going to make any money?

I understand the inflationary aspect of increasing the number of bitcoins but it seems inevitable to me at least.

So miners get paid in 2 ways:

(1) The blockchain reward, currently at 12.5 bitcoins. This will havle and halve and halve and is what you are referencing going away.
(2) Fees paid by people transacting on the network.

So they would get paid by #2.

Regarding your inveitable to make it inflationary argument, if you truly believe that (and I don't obviously), then yes, you should not get involved with bitcoin. For me at least, it is at least half of its appeal, that there will only ever be 21M bitcoins.

And considering how difficult it was to even add a change like "Hey, maybe we should double our block size from 1MB to 2MB so that way we can include more transactions", I seriously doubt bitcoin will ever be inflationary. We just had a civil war over it. It took 3 years, and the people that disagreed ultimately took their ball and went home. For a monumental change like "Hey, let's change the total number of bitcoins"? I'd venture to say you'd NEVER achieve concensus for a change like that.

It is inherently insecure (if I can hack your wallet and take your bitcoin, there is no third party or government that will roll back the transaction).

For a hacked wallet I believe that in principle you have the same recourse as you have for a picked pocket. If you convince a DA and judge that the Bitcoins were stolen the hacker could be imprisoned and required to make restitution. The details of the required proof would differ and the chances the hacker is in another country is much higher (which complicates matters) but in principle the same laws apply. Also remember that Bitcoins are not really anonymous so tracking where they went is possible.

Which is to say Bitcoin is not outside the law. Stealing them is illegal. Using them to make illegal transactions is illegal. Not paying taxes on gains is illegal, etc.

There are plenty of countries where bitcoin is not regarded as property, and if someone from one of these countries takes your bitcoin, you have no practical recourse. Even if a US person were to steal your bitcoin, good luck getting the FBI to try to get it back.

You can short bitcoin on many exchanges. The most mainstream and best-insured of these is Coinbase's GDAX exchange.

"You can't short bitcoin" seems to be a common trope these days. If believed, it provides a tidy solution to the question: "If one is certain bitcoin is a bubble, why not short it?"

I'm not being facetious here. Many bogleheads simply don't touch assets like bitcoin, and for perfectly good reason. But if one is so firm in the belief that bitcoin's value is destined to plummet, one should short bitcoin. Increased crypto market involvement, whether it's long or short, brings efficiency.

You can short bitcoin on many exchanges. The most mainstream and best-insured of these is Coinbase's GDAX exchange.

"You can't short bitcoin" seems to be a common trope these days. If believed, it provides a tidy solution to the question: "If one is certain bitcoin is a bubble, why not short it?"

I'm not being facetious here. Many bogleheads simply don't touch assets like bitcoin, and for perfectly good reason. But if one is so firm in the belief that bitcoin's value is destined to plummet, one should short bitcoin. Increased crypto market involvement, whether it's long or short, brings efficiency.

Why not short bitcoin? Keynes..."The market can remain irrational longer than you can remain solvent." Yeah, there's a bitcoin bubble. Bitcoin's value is destined to plummet. Sometime. But will that happen before or after I get wiped out by shorting it?

My (admittedly limited) understanding is that "miners" are paid bitcoins for recording transactions in the blockchain.

Once all the bitcoins have been mined how are the people/nodes maintaining the blockchain going to make any money?

I understand the inflationary aspect of increasing the number of bitcoins but it seems inevitable to me at least.

So miners get paid in 2 ways:

(1) The blockchain reward, currently at 12.5 bitcoins. This will havle and halve and halve and is what you are referencing going away.
(2) Fees paid by people transacting on the network.

So they would get paid by #2.

Regarding your inveitable to make it inflationary argument, if you truly believe that (and I don't obviously), then yes, you should not get involved with bitcoin. For me at least, it is at least half of its appeal, that there will only ever be 21M bitcoins.

And considering how difficult it was to even add a change like "Hey, maybe we should double our block size from 1MB to 2MB so that way we can include more transactions", I seriously doubt bitcoin will ever be inflationary. We just had a civil war over it. It took 3 years, and the people that disagreed ultimately took their ball and went home. For a monumental change like "Hey, let's change the total number of bitcoins"? I'd venture to say you'd NEVER achieve concensus for a change like that.

Just so I understand:

Currently a miner gets paid 12.5 bitcoins x $11,000 = $137,500 USD for adding a 1 megabyte block of transactions to the blockchain???

It would seem like the transaction fees would have to be huge to even come close to making that up once the 21m bitcoins are all paid out and fees are the only way to get paid. Would that be enough incentive to keep people mining? Would anyone use bitcoin if the transaction fees were as much as the dollar value of their transaction?

Why not short bitcoin? Keynes..."The market can remain irrational longer than you can remain solvent." Yeah, there's a bitcoin bubble. Bitcoin's value is destined to plummet. Sometime. But will that happen before or after I get wiped out by shorting it?

I'm not an experienced bitcoin shorter, but can't you just keep adding to your short to prevent it from being liquidated? After all, if bitcoin's value plummeting is indeed destined, wouldn't this be the correct method to profit from it, as long as this destiny is fulfilled within your investment time horizon?

Why not short bitcoin? Keynes..."The market can remain irrational longer than you can remain solvent." Yeah, there's a bitcoin bubble. Bitcoin's value is destined to plummet. Sometime. But will that happen before or after I get wiped out by shorting it?

I'm not an experienced bitcoin shorter, but can't you just keep adding to your short to prevent it from being liquidated? After all, if bitcoin's value plummeting is indeed destined, wouldn't this be the correct method to profit from it, as long as this destiny is fulfilled within your investment time horizon?

Are there any anti-bitcoiners here who are shorting bitcoin?

There are lots of exchanges that have margin trading accounts. SeekingAlpha said it's "increasingly looking like a good idea" to short Bitcoin back in June...............it's up 300%+ since then

Why not short bitcoin? Keynes..."The market can remain irrational longer than you can remain solvent." Yeah, there's a bitcoin bubble. Bitcoin's value is destined to plummet. Sometime. But will that happen before or after I get wiped out by shorting it?

I'm not an experienced bitcoin shorter, but can't you just keep adding to your short to prevent it from being liquidated? After all, if bitcoin's value plummeting is indeed destined, wouldn't this be the correct method to profit from it, as long as this destiny is fulfilled within your investment time horizon?

AFAIK there is no way to hedge the position-- you get a margin call (required to put in more variation margin) then you will get squeezed, badly. Eventually you will run out of capital.

Shorting very illiquid instruments is always tricky at best. You saw that letter in the WSJ? The one that was taken out as an ad re the 30% initial margin (i.e. allowing gearing of 3.33 to 1)? Suggesting that the CME not clear the bitcoin derivative through the same clearing arrangements as for other financial instruments?

http://fortune.com/2013/12/05/how-to-be ... egabubble/ is quite old but takes you through the problem of put options against something that settle not in dollars (as say a put option on GE stock would) but in bitcoins themselves. Like a put against Brent Crude or WTI that settles in physical oil.

We come back to the Andre Shleifer paper "Inefficient Markets" (published by Oxford University Press). In the presence of 2 types of traders: fundamental traders and noisy traders, with the latter trading on momentum, AND limits to arbitrage (borrowing limits on short selling) then it can the rational thing for the fundamental traders to get on the bandwagon and ride the momentum up, rather than seeking to bet against the price rise, in search of fundamental value of the financial asset.

So I think the basic answer is that bitcoin is too new, and too difficult to short in size (both volatility and liquidity could make that very expensive), for a significant body of traders out there to short it on fundamental value grounds. Add to the fact no one knows what the "true" value should be, and the problem becomes almost insuperable. Dr. Michael Bury and Steve Eisman just don't have any way to get their ice picks into it-- remember the problems that Bury has originally in The Big Short (movie scene, but also book) trying to find someone to write CDS on the CDO tranches (bonds) that he wants to short?

If for example the Chinese government were about to ban it outright (or some other devastating policy announcement to be made by someone) then don't be surprised if someone (Far Eastern perhaps) turns out to have wedged in big time-- there are a lot of places in the world which are not so scrupulous about inside information as Anglo Saxon capital markets.

Why not short bitcoin? Keynes..."The market can remain irrational longer than you can remain solvent." Yeah, there's a bitcoin bubble. Bitcoin's value is destined to plummet. Sometime. But will that happen before or after I get wiped out by shorting it?

I'm not an experienced bitcoin shorter, but can't you just keep adding to your short to prevent it from being liquidated? After all, if bitcoin's value plummeting is indeed destined, wouldn't this be the correct method to profit from it, as long as this destiny is fulfilled within your investment time horizon?

Are there any anti-bitcoiners here who are shorting bitcoin?

There are lots of exchanges that have margin trading accounts. SeekingAlpha said it's "increasingly looking like a good idea" to short Bitcoin back in June...............it's up 300%+ since then

That really smells like the blow off-- the upward price momentum has gotten to the point where the logical shorters in the market, don't.

This is feeling so much like 1999, but, of course, it could only be 1996 . Irrational Exuberance, to quote Chairman Greenspan.

You will not find a single person that owns bitcoin so that he uses it as a currency.

Nope.

Everybody that buys bitcoin today, and I mean everbody, is buying for one reason only. In hopes of selling to a sucker tomorrow.

I buy just enough Bitcoin solely for use in financial transactions, including the purchase of software and making donations to server maintainers, so I can maintain anonymity. I don't think I'm the only one either. How does that reconcile with your opinion?

We know there are bitcoin shorts, and plenty of them. Shorts have been available for years, on many exchanges. I see them discussed frequently on crypto trading forums, and there are even Twitter accounts that use exchange APIs to tweet notable instances of margin calls (e.g. @bitmexrekt).

There's a discrepancy between those foretelling bitcoin's impending demise, and those taking out shorts, and I have yet to see it explained reasonably.

I'm curious to hear from any Boglehead who has taken out a short on bitcoin.

It is inherently insecure (if I can hack your wallet and take your bitcoin, there is no third party or government that will roll back the transaction).

For a hacked wallet I believe that in principle you have the same recourse as you have for a picked pocket. If you convince a DA and judge that the Bitcoins were stolen the hacker could be imprisoned and required to make restitution. The details of the required proof would differ and the chances the hacker is in another country is much higher (which complicates matters) but in principle the same laws apply. Also remember that Bitcoins are not really anonymous so tracking where they went is possible.

Which is to say Bitcoin is not outside the law. Stealing them is illegal. Using them to make illegal transactions is illegal. Not paying taxes on gains is illegal, etc.

There are plenty of countries where bitcoin is not regarded as property, and if someone from one of these countries takes your bitcoin, you have no practical recourse. Even if a US person were to steal your bitcoin, good luck getting the FBI to try to get it back.

In even well run countries the clearance rate for most property crimes is usually something like 20%. So if anything is stolen you need good luck for the authorities to get it back for you. But this does not prevent people owning cars, jewelry or dollar bills, and it should not prevent you owning Bitcoins.

Moreover there are actual cases of people being arrested, convicted and jailed for stealing Bitcoins. If nothing else anti-money laundering efforts will catch some thieves.

In even well run countries the clearance rate for most property crimes is usually something like 20%. So if anything is stolen you need good luck for the authorities to get it back for you. But this does not prevent people owning cars, jewelry or dollar bills, and it should not prevent you owning Bitcoins.

The huge difference is people ordinarily own cars to directly make use of them (even a collector owns the car basically for the satisfaction of having access to it) and jewelry is ordinarily owned with the justification that it is sometimes worn. Bitcoins only have potential value in the sense you can manage to exchange it for other currency or actually buy something with it.

Generally on this forum we would only advise people to at most have enough cash in their possession for a temporary emergency after a natural disaster at most given the inherent theft risks. (Bitcoins by contrast essentially can't be effectively used if no-one has power and probably no internet access.)

Furthermore we know how more effectively protect cash from theft for instance with certain measures such as a good alarm system and a well secured high quality safe, while the technical risks associated with bitcoin which do not require a physical break in at all by the thief are less obvious and this is particularly problematic for someone not particularly knowledgeable about this area of computer/digital security.

The big picture in this area is the theft risks (particularly in terms of not being able to get your money back) are simply way lower with money in a bank or for that matter in a general mutual fund compared to what the situation is with bitcoins right now.

We know there are bitcoin shorts, and plenty of them. Shorts have been available for years, on many exchanges. I see them discussed frequently on crypto trading forums, and there are even Twitter accounts that use exchange APIs to tweet notable instances of margin calls (e.g. @bitmexrekt).

There's a discrepancy between those foretelling bitcoin's impending demise, and those taking out shorts, and I have yet to see it explained reasonably.

I'm curious to hear from any Boglehead who has taken out a short on bitcoin.

You do realize that the sample size of Bogleheads who are willing to hold short positions on *anything* is very small, right?